# Assignment Saintsbury

Good Essays
811 Words
Grammar
Plagiarism
Writing
Score
Assignment Saintsbury
1.0 Company Overview

2.0 Analysis on Sainsbury

Gearing ratio is used to measure the financial leverage, indicating the degree to which a company’s activities are funded by owner’s funds against the creditor’s funds (Watson and Head 2013). In fact, the higher the company’s degree of leverage, it’s considered to be that the company is at a risky state because no matter how bad the company’s sales are but still it be able to finance its debts.In this context, there are three ratios is to be considered, the debt to equity ratio capital gearing ratio and the interest cover.

Debt to equity ratio – shows the extent to which the assets are financed by either debt or equity. This could be calculated by the following equation. The decision on the ratio of long term debt to equity is considered as a strategic one for managers i.e. future oriented and has a long term effect (Watson and Head, 2007). Capital structure decision directly affects entity’s profits; this makes it the important decision in corporate finance, so it must not be taken lightly.
Debt to equity ratio = Long term debt Total Equity
Using the aforementioned formula the debt to equity ratio was calculated for 5 years and as per the graph shown below the debt to equity ratio has been below 100% for the past 5 years. This is quite good for shareholders as the organization is able to pay off its debts using the equity that they have.
In contrary, if the debt to equity ratio is high (i.e. above 100%) that means the company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. As you can see, in 2011 the ratio has been come down to 56% but has been increased to 64% in 2012 and remained the same in 2013 as well. However, in 2014 the ratio has been reduced to 63%. Therefore in conclusion we can say that Sainsbury’s debt to equity ratio is on the low side and they are able to settle off their debts quite conveniently

## You May Also Find These Documents Helpful

• Satisfactory Essays

The debt-to-equity ratio measure a company's financial leverage, suggesting the proportion of equity and debt the company used to finance its asset. The debt-to-equity ratios of Beacon Lumber Company from November 2009 to January 2010 are 1.181047492, 1.230387896 and 1.14884363. These three ratios are all above1.0 showing that the majority of assets are financed through debt, which means the company strategy is aggressively generating more earnings. At the same time, Beacon Lumber Company should carefully handle this aggressive strategy and protect stockholder’s right.…

• 269 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

This ratio shows how financially stable a company is. It shows the relationship between the invested capital and the credit available. The final number will show if the company is poised to grow or is underachieving.…

• 572 Words
• 3 Pages
Satisfactory Essays
• Good Essays

The strength of Mark X as a company is its fixed assets turnover ratio, which rose from 1990 to 1992. This tells us Mark X 's ability to generate net sales from each addition of a fixed asset. Sales generated from the fixed assets are greater than the costs of the fixed assets, which imply that the fixed assets that were purchased are good investments for the company. This is really the only positive ratio they have at the moment. Weaknesses we found in Mark X were its debt ratio, which increased from 40.47% in 1990 to 46.33% in 1991 and from 46.33% to 59.80% in 1992. This shows us Mark X 's amount of debt relative to its assets is increasing and that its debt is equal to more than half of its assets by 1992. The current ratio and quick ratio has also indicated negative change, both decreasing between 1990 and 1992. The current ratio is a liquidity ratio that measures a company 's ability to pay short term obligations, while the quick ratio shows a company 's ability to pay its short-term obligations with its most liquid assets. Both ratios are steadily decreasing, indicating to us the position of the company has become less and less favorable.…

• 1418 Words
• 4 Pages
Good Essays
• Better Essays

It currently has a debt-to-equity ratio of 0.66. But, the Board of Directors has decided to raise a significant amount of debt to finance the construction of a new manufacturing plant for the Solar-Electro division. This would increase the debt-to-equity ratio, which could generate concerns to investors.…

• 1251 Words
• 5 Pages
Better Essays
• Satisfactory Essays

The company also do not have sufficient financial leverage in their capital structure. The financial leverage is calculated as EBIT / EBIT – Interest = 320000 / 304000 = 1.05. Considering the high tax rate of 40% to which the company is subject to, a high financial leverage could be employed by the company to magnify the returns to equity shareholders. But the care should be taken that financial leverage is not too high that they plunge the company into financial distress.…

• 263 Words
• 1 Page
Satisfactory Essays
• Good Essays

Solvency ratios are used to measure how well a company manages its debts. For instance, the total debt ratio is total assets minus total equity divided by total assets. Coca-Cola has a debt ratio of 60.5 percent. The debt ratio shows the percentage of Coca-Cola’s asset that is financed through debt. Approximately 61% of the company's assets are financed through debt. The Debt to equity ratio measures the stability of financing provided by stockholders compared to the financing provided by creditors. This is calculated as total liabilities/total equity. Coca-Cola’s debt to equity is 83 percent. A large amount of debt as a percentage of equity indicates that Coca-Cola is funding operations and growth through debt.…

• 417 Words
• 2 Pages
Good Essays
• Satisfactory Essays

The Debt/Equity ratio is another important indicator of Dunkin Donuts’ financial standing. In equation form, the Debt/Equity = Total Liabilities/(Total Assets – Total Liabilities). Debt/equity ratio is able to indicate all of its debt obligations of the next year with its current resources. In general, a high debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations. However, a low debt-to-equity ratio may also indicate that a company is not taking advantage of the increased profits that financial leverage may bring.…

• 364 Words
• 2 Pages
Satisfactory Essays
• Good Essays

Debt to Equity ratio for 2012 is 1.23 that shows 17.44% improvement over last year. Company is less dependent on debt. (Appendix 1)…

• 1019 Words
• 5 Pages
Good Essays
• Better Essays

The company has significant levels of Equity and is not minimizing its financial structure. It is able of taking more debt, but the debt needs to be more properly structured. The D/E ratio during the years increased significantly. In 1993 the D/E ratio was 22% and in 1996 it grew at 67% (Appendix1). Also the Comparison of the total Equity and the total Liabilities show that the share of Equity of…

• 2445 Words
• 10 Pages
Better Essays
• Good Essays

The debt to equity ratio is a financial, liquidity ratio that compares a company's total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. Kirkland`s debt-to-equity ratio at year end 2016 is 0.99 percent. The peer average is 0.88 percent, Kirkland’s ratio indicates more than the usual amount of borrowed funds to finance its activities.…

• 294 Words
• 2 Pages
Good Essays
• Satisfactory Essays

Comparing the debt to equity we see that there is more debt than there is equity. This is a dangerous position for the firm to be in.…

• 759 Words
• 4 Pages
Satisfactory Essays
• Satisfactory Essays

However the interest cover was lower in the previous years and this may be due to either a low EBIT - therefore low sales or high operating costs – or too high interests, meaning that the debt to equity ratio is high or that the interest rate is too high. For Carrefour, the debt to equity ratio, which shows the company’s debt level compared to the equity, is 77.7%. it can be considered a risky situation, however it isn’t necessarily bad for Carrefour as its interest cover value is positive and the higher debt allows it to pay for new buildings and other assets in order to achieve growth. Carrefour’s cost of debt is 1.71%, which is positive because it is much lower than the ROE, indicating that shareholders are well…

• 707 Words
• 3 Pages
Satisfactory Essays
• Good Essays

Financial risk of the entity can also be assessed through the interest coverage ratio (also referred to as times interest eared)…

• 465 Words
• 2 Pages
Good Essays
• Good Essays

References: Ireland R. D., Hoskisson R. E. & Hitt M. A (2009). The Management of Strategy Concepts, Eight Edition. South-Western Cengage Learning.…

• 6067 Words
• 30 Pages
Good Essays
• Good Essays

two important financial concepts of a solvent and sustainable business. The first component shows how much of the total company assets are owned outright by the investors. In other words, after all of the liabilities are paid off, the investors will end up with the remaining assets. The second component inversely shows how leveraged the company is with debt.…

• 968 Words
• 4 Pages
Good Essays